Unable to Retire? Here are Four Refinance Options That Can Help

You might be ready to retire, but just because you're eligible to start receiving retirement benefits doesn’t mean you can. Whether you’re eligible for Social Security or eligible to receive withdrawals from your 401(k) plan or pension, you have to count the cost before retiring. And unfortunately, some would-be retirees discover that their retirement income isn't enough to cover their expenses. You have a choice: either continue working a few more years to build up your retirement account, or retire and get a part-time job. However, if you're ready to enjoy your freedom and travel, working beyond a certain age can be grueling at best. Fortunately, you don't have to give up on the idea of retiring. The key is lowering monthly expenses so you can live off less income, and refinancing your mortgage loan might be the answer. If you don’t think you can retire because of a high house payment—and you don’t want to move— here are a few refinance options that can help you. 1. Improve your credit first Refinancing a mortgage loan is one of the best ways to take advantage of dropping interest rates. When you have a lower interest rate, your mortgage payment decreases. However, to qualify for a better rate, you need good credit. Actually, you can't have one without the other. For that matter, get a copy of your credit report from annualcreditreport.com. Comb the report carefully looking for errors or areas that need improvement, and then take steps to rebuild your credit. Pay bills on time, pay off credit card debt and limit your number of credit applications. 2. Extend your mortgage loan another 30 years This approach isn’t recommended in every situation. If you’re scheduled to pay off your mortgage in five or 10 years (or less), it’s smarter to stick with the schedule and become mortgage-free in just a few short years. However, if you purchased the home later in life, and you have several years left on the mortgage term, refinancing and extending repayment another 30 years decreases the monthly payment. In fact, your house payment may drop to an affordable level, essentially putting retirement within reach. 3. Choose a fixed rate mortgage Some people choose an adjustable rate mortgage because these feature a lower interest rate during the initial years. The only problem with an adjustable mortgage is that the interest rate isn’t permanent. After the first three, four or five years, the rate resets every year. And depending on the market, your interest rate can possibly increase with each rate adjustment. If you're retiring, you don't need this type of fluctuation. Since you'll have a fixed income, you need a stable mortgage payment. With a fixed rate mortgage, the rate doesn't change for the duration of the loan, resulting in predictable payments. 5. Don’t cash out If you have plenty of equity and you’re refinancing, there's the temptation to get a cash-out refinance. You can use these funds for any purpose, such as debt consolidation, home improvements, etc. Just know that a cash-out refinance isn’t  free money. Borrowing from your equity increases the mortgage balance and your home loan payment. And if you're looking to reduce expenses so that you're able to retire sooner, a cash-out refinance negates any possible savings. After 30 or 35 years of hard work, it might be time to hang up your hat. Retiring may seem impossible right now, but if you can reduce your expenses—especially your housing expense— retiring may be easier than you think.